Tatton Asset Management Plc (LON:TAM) maiden full year results confirm that its 3 divisions are growing their client bases and its discretionary wealth management division “Tatton” is driving profitability. Highlights include:
* Tatton’s assets under management (AuM) rose 25.6% to £4.9bn;
* Group revenues increased 30.7% to £15.5m (Zeus forecast: £15.2m).;
* Adj operating profit (ex IPO costs & SBP) rose 44.7% to £6.5m;
* Adj EPS increased 49.5% to 9.6p (Zeus forecast: 9.3p).
* Final DPS of 4.4p makes total DPS of 6.6p (Zeus forecast: 6.5p).
The group demonstrated healthy cash generation with cash on 31 March 2018 of £10.6m (Zeus forecast: £10.6m).
A positive trading outlook statement from Paul Hogarth, Founder and CEO, refers to “a strong underlying performance across each of [the Group’s] three businesses. Post the year-end, [the Group has] surpassed a significant milestone – £5 billion of discretionary AUM – which is a considerable achievement for the team.”
Zeus view: forecast PBT growth of 20% in FY(Mar)19e – Overall these results are remarkably close to our forecasts. At a divisional level there were features (e.g. predictable growth in Tatton’s revenues and profits; strong growth in Paradigm Mortgages’ revenue; reduction in Paradigm Partners revenue; increase in central costs).
After making adjustments to our forecast for the year to March 2019, we leave our forecasts for revenue, adj PBT, adj EPS and DPS unchanged (see page 2).
We expect adj PBT growth of 20% and adj EPS growth of 18%.
Valuation: At 232p, Tatton Asset Management Plc shares are trading on a March 2019 3.4% prospective dividend yield, on 20.5x EPS and on a PEG of 1.0x. In our opinion, this valuation reflects the quality of its growth.
For the years to March 2019 and 2020, we see prospects for over 20% EPS and DPS growth. On a FY(Mar)20e PEG of 1.0x Tatton shares would trade on 287p (i.e. 24% above the current share price of 232p).
In FY(Mar)20e with £7.2 bn of AuM, the PER on our forecasts falls to 17x and dividend yield to 4.0%.
In our opinion, when TAM has £10 bn of AuM, Group EPS should reach 18p and the stock, TAM, could trade on circa 20x (i.e. at 360p per share). Discounting this back at a risk discount rate of 40% pa, implies a mid-2018 valuation of 255p per share (i.e. 10% above the current price of 232p). See our research published in January 2018 for further details of our analysis.
